Excerpt:.....5-7-1975 in respect of the assessment year 1974-75 asking for time till 31-8-1975. similarly the assessee filed applications asking time for filing return up to 31-11-1975 in respect of the assessment year 1975-76. the assessee filed the returns on 24-7-1975 and 15-1-1976 in respect of the assessment years 1974-75 and 1975-76, respectively. the wto did not communicate the result of such applications, i.e., whether the same were rejected or allowed. so the assessee was under the bona fide belief that the extension of time as sought by him was granted. their lordships of the gujarat high court have considered a similar issue in the case of cit v. bharat prakashan [it reference no. 126 (ahd.), dated 16-7-1980]. their lordships of the gujarat high court in the aforesaid case have held that.....

Judgment: 1. These two appeals are filed by the revenue against the orders of the AAC dated 15-6-1981. The assessment years involved are 1974-75 and 1975-76. Since common issue is involved in both these appeals, they were heard together and are being disposed of by a common order for the sake of convenience.

2. The only issue for our consideration in these appeals is whether, on the facts and in the circumstances of the case and in law, the AAC has erred in cancelling the penalty levied under Section 18(1)(a) of the Wealth-tax Act, 1957 ('the Act').

3. The assessee has filed the returns of net wealth in respect of the assessment years 1974-75 and 1975-76 on 24-4-1975 and 15-1-1976, respectively. But actually the return for the assessment year 1974-75 was required to be filed on or before 30-6-1974 and that for the assessment year 1975-76 on or before 30-6-1975. Thus, there was delay in filing the returns. Before the penalty orders were passed by the WTO, the assessee approached the Commissioner of Wealth-tax under Section 18B of the Act for waiver of penalty. The Commissioner of Wealth-tax vide his order, dated 7-2-1979, held that in this case the penalty is leviable. However, he restricted the quantum of penalty to 50 per cent of penalty leviable in this case. Accordingly, the WTO levied the penalty and restricted the same to 50 per cent by his orders dated 7-2-1979.

4. Being aggrieved, the assessee carried the matter before the AAC. The AAC held that in view of the ratio of decision of their Lordships of the Karnataka High Court in the case of CWT v. B. Kempanna [1980] 126 ITR 825, the appeals are maintainable. On merits, the AAC following the ratio of decision of their Lordships of the Rajasthan High Court in the case of CIT v. Rawat Singh & Sons [1979] 120 ITR 65 held that there were reasonable causes which prevented the assessee from filing the returns in time since the assessee's application for extension of time were not rejected. Consequently, he allowed the appeal for the assessment year 1974-75 and in respect of the assessment year 1975-76 he allowed the appeal partly.

5. Being aggrieved, the revenue is in appeal before us. The main submission of the learned departmental representative, Shri Vaidhya, was that the WTO has given effect to the order of the Commissioner of Wealth-tax passed under Section 18B which is not appealable. Therefore, the appeals are not maintainable. On the other hand, the submission of the learned counsel for the assessee, Shri Shah, was that the orders of the WTO passed under Section 18(1)(a) are independent to the order of the Commissioner of Wealth-tax under Section 18B. Therefore, appeals against orders under Section 18(1)(a) are maintainable. He relied on the decisions in the cases of CGT v. N. Palaniappa Mudaliar [1978] 113 ITR 440 (Mad.), CWT v. M.K.S. Vanavarayar [1980] 122 ITR 184 (Mad.) and B. Kempanna (supra). Further he relied on the ratio of decisions of the Rajasthan High Court and the Gujarat High Court wherein it has been held that since application for extension of time has not been rejected, it should be taken as reasonable cause for not filing the return in time.

6. We have heard the rival submissions and perused the entire evidence on record. The facts in the case of Smt. Kherunissa Allibhai v. CIT [1978] 113 ITR 443, before their Lordships of the Gujarat High Court were that the assessee approached the Commissioner of Income-tax under Section 273A of the Income-tax Act, 1961 ('the 1961 Act') and also filed appeal. The Commissioner of Income-tax had dismissed the application filed under Section 273A on the ground that the assessee had taken recourse to other remedy, i.e., the assessee had filed appeal before the AAC. Their Lordships held that the dismissal of application by the Commissioner of Income-tax was not correct. Their Lordships have observed as under : ...The whole concept under Section 273A is that the assessee concerned admits his laibility to penalty but relies upon certain mitigating circumstances or certain circumstances specified in the section for the purpose of getting the penalty waived or reduced.

When the assessee approaches the Commissioner under Section 273A he does not dispute his liability to pay the penalty. All that he says is that he should be given the relief of reduction or waiver by the fact that the conditions specified in Section 273A are satisfied.

However, when an assessee files an appeal against the order of penalty, he is challenging the very imposition of penalty and his effort in the appeal is to show that, in the circumstances of his particular case, penalty was not imposable at all. This distinction between what can be urged in an appeal and what can be urged in proceedings under Section 273A must be clearly borne in mind....(pp.

445-46) From the above observation of their Lordships of the Gujarat High Court it is abundantly clear that an assessee can take recourse to file an appeal as well as he can approach the Commissioner of Income-tax for waiver or reduction of penalty.

7. In the case of M.K.S. Vanavarayar (supra), their Lordships of the Madras High Court have held that as the appeals to the AAC were against the orders of the WTO passed in pursuance of orders passed by the Commissioner of Wealth-tax under Section 18(2A), the appeals to the AAC were competent. The decision of their Lordships of the Madras High Court on this point squarely covers the case before us. Their Lordships of the Madras High Court at page 190 of the report, have further observed that the order passed by the Commissioner of Wealth-tax under Section 18(2A) was invalid since it was not communicated of the assessee. The order passed by the WTO was independent to the order of the Commissioner. That is not the case before us. Therefore, we do not agree with the submission of the learned counsel for the assessee that the case is squarely covered by the ratio of decision in the case of M.K.S. Vanavarayar (supra).

8. In the case of B. Kempanna (supra) their Lordships of the Karnataka High Court have observed as under : ... There is no such restriction imposed while invoking the provisions of Section 18(2A). This is because the ambit and scope of Section 18(2A) is quite different and in no way affects the jurisdiction of the WTO to decide about the questions arising under Section 18(1)(o) of the Act as to the existence or non-existence of reasonable cause. The only effect the order of the Commissioner would have is that the minimum penalty to be levied by the WTO would be in accordance with what is determined by the Commissioner if the minimum penalty is only reduced and not waived and if it is waived, the WTO is also bound not to levy any penalty. Apart from this, there is no other effect consequent on the order of the Commissioner under Section 18(2A) so far as the jurisdiction of the WTO is concerned in the matter of imposition of penalty. Consequently, the right of appeal (available) to the assessee against the order of the WTO imposing penalty under Section 18(1)(a) (even subject to the reduction as directed by the Commissioner) is not lost. The Tribunal was in error in holding that the appeals before the AAC were not maintainable ...(pp. 830-31) From the above observations it appears that the ambit and scope of Section 18(2A) is quite different and in no way affects the jurisdiction of the WTO to decide the questions arising under Section 18(1)(a) as to the existence or non-existence of reasonable cause. The only effect the order of the Commissioner would have is that the minimum penalty to be levied by the WTO would be in accordance with what is determined by the Commissioner if the minimum penalty is only reduced and not waived and if it is waived, the WTO is also bound not to levy any penalty. Apart from this there is no other effect consequent on the order of the Commissioner under Section 18(2A) so far as jurisdiction of the WTO is concerned in the matter of imposition of penalty. The Commissioner of Wealth-tax in his order under Section 18B (corresponding to Section 273A of the 1961 Act) dated 21-12-1978, has held as under : The penalties leviable under Section 18(1)(a) for the assessment years 1974-75 and 1975-76 are reduced to 50 per cent of the amount leviable.

From the aforesaid order of the Commissioner of Wealth-tax it appears that he has decided the quantum of penalty, i.e., whatever penalty is leviable, [the same] should be reduced to 50 per cent. Thereafter, the WTO has passed penalty order under Section 18(1)(a) holding that the assessee had no reasonable causes and by simply filing an application the assessee's responsibility does not cease. Accordingly, he levied penalty and reduced it to 50 per cent. It means the order of the WTO has dual effect, i.e., imposition of penalty by exercising powers vested under Section 18(1)(a) and giving effect to the order of the Commissioner of Wealth-tax, thereby reducing the penalty to 50 per cent. In view of the aforesaid facts it cannot be said that the WTO has merely given effect to the order of the Commissioner of Wealth-tax.

From the orders of the WTO, it is apparent that he has decided the issue regarding the imposition of penalty. It is true that once the assessee approaches the Commissioner for suitable reduction or waiver of penalty, he accepts his guilt but penalty is quasi-criminal in nature and if the assessee in the wrong notion accepts his guilt while that is not so, he should not be penalised unless there is a clear case of default. Looking to the aforesaid facts and entirety of the circumstances of the case, we are of the opinion that against the orders of the WTO passed under Section 18(1)(a) appeals are maintainable.

9. Now the point which remains for our consideration is that whether on merits penalty is leviable in this case under Section 18(1)(a). The assessee has filed applications for extension of time for filing the returns. Such applications were filed on many occasions, the last one being filed on 5-7-1975 in respect of the assessment year 1974-75 asking for time till 31-8-1975. Similarly the assessee filed applications asking time for filing return up to 31-11-1975 in respect of the assessment year 1975-76. The assessee filed the returns on 24-7-1975 and 15-1-1976 in respect of the assessment years 1974-75 and 1975-76, respectively. The WTO did not communicate the result of such applications, i.e., whether the same were rejected or allowed. So the assessee was under the bona fide belief that the extension of time as sought by him was granted. Their Lordships of the Gujarat High Court have considered a similar issue in the case of CIT v. Bharat Prakashan [IT Reference No. 126 (Ahd.), dated 16-7-1980]. Their Lordships of the Gujarat High Court in the aforesaid case have held that the assessee filed application for extension of time. The ITO neither rejected the application nor sent any communication in this respect to the assessee.

The assessee was under bona fide belief that his application for extension of time has been granted. This constitutes a reasonable cause. Respectfully following the "said decision of their Lordships of the Gujarat High Court, we hold that the assessee had reasonable causes which prevented him from filing the returns within the time.